It's a super honour for me to present a special guest post for you on the issues of finance within the ELT publishing industry, by a true veteran of the business. The post is in response to a discussion we were both a part of in the IATEFL Young Learner Yahoo Group and I'm delighted to host it here.

Are you amongst those who can’t even look at a textbook without feeling annoyed?

Let me try and explain why you needn’t feel like this, even if you don’t like text books, never use one and may have personal views about individuals in the business as well!

How did textbooks start?

Usually because some smart teacher arranged,organized, sequenced, sliced and diced and generally managed the material to be taught in a way that helped her, produced results, and her colleagues found it helpful and time-saving as well. So those smart teacher-publishers rapidly became rather richer, so of course they started to look around for other subjects to apply the same approach to.

To do this, they learned how to deal with the mimeograph machine, or haggle with printers, how to store and distribute in practical and economic ways, howto find other teachers who could assemble content in a meaningful way to other teachers, how to find others who could manage and improve these teachers’ work, and so on. Thus publishing companies were born.

In that original print-based world, an initial one-time investment is made in the creation of the fixed format of the book, and then of course the more copies sold, the more attractive that fixed amount looks when spread over a very large number of copies, amortizing (paying off a debt over a period of time) the initial investment to reach a break-even point, after which it’s all profit.

The cost of printing

Of course, there are some costs related to each individual book – the cost of printing, and the royalty paid to the author. Those two sums have to be paid on every single book. But there’s an upside to printing - the larger the number of copies printed, the cheaper each one becomes, because the key cost in traditional printing is associated with the initial setting up of the print run – cleaning printing plates and presses, making and mounting the film and so on.

This outlines the basic print publishing business model – find out and offer what people really feel is valuable to them, invest a fixed sum once to create it, and replicate it at reasonable cost many times over.

So two different sorts of publishing investment is required. One is a fixed, one-time investment (the editing, design, planning, research etc to get to a point where there is something to print) and the other is a variable cost, which depends on the number of books printed and sold (the per-copy printing cost and author royalty cost), and which is paid on every single copy.

This means it is extremely difficult, not to say impossible, to say exactly what each individual book costs to create. If the book sells well, the amount of the fixed, pre-press investment will look quite small on a per-book basis, and of course the converse is true.

A wrinkle in this picture is that the costs of some of the items in the pre-press investment may be considered overhead – the salaries and overhead connected with maintaining editorial, marketing and sales staff, for example. This overhead is probably not taken into the costs for each individual book.

Of course the publisher’s goal is to invest once, cover all those costs as well as contribute to the cost of maintaining the necessary overhead, have the cash flow to continue to be able to print as required, and when all that has been paid for, to have a profit – a surplus after all the bills have been paid and the revenue from sales has come in. It sometimes works and it sometimes doesn’t. So it helps to have a lot of books, so that some are moving into the market and will take a little while to become profitable, while others are at their peak and yet others declining.

Complexities to costing

While this business model is essentially simple, there are complexities this picture doesn’t capture. For example, the publisher is almost certainly not the final sales point for the book. This may be a local retailer in the international market, a local education or school district distribution point in some countries, or Amazon etc. To make the book available to the buying public, the publisher offers a discount, which inevitably means the price the ultimate consumer pays is not the price the publisher receives. In overseas markets, the publisher may give 60% or 70% discount, so the amount the publisher receives from what the customer pays may be only 30% or 40%.

In addition, publishing is a very time-sensitive business. Books must be available when schools open. Often teachers won’t commit to a book without seeing that the whole series is available. The effect of all this is that the publisher has to make all investment up front, before a single book has been sold. If there has been any delay in receiving payments from the previous year (more common than you would think), or if a book didn’t sell as well as expected, the publisher may need to buy cash flow from the bank. This of course adds to the publisher’s costs.

So if you pay £20 in a bookshop, the publisher will receive between £14 (if the discount is only 30%) and £6 (if the discount is 70%). Nowadays most books are targeted at specific local markets and it is rare for the exact same book to sell throughout the world - there are exceptions, mostly amongst books published before the mid 90s, and there’s a reason for this, which is that the massive increase in computer and desk top publishing since the mid 1990s has made it much easier to be a publisher.

This led to massive fragmentation and increase in numbers of publishers serving their own specific, local market. This increased level of competition leads in turn to greater sales and marketing cost, which may now be 5-7 times greater than editorial overhead costs. In attempting to manage this risk, publishers avoid anything experimental or outside the normal publishing pattern, leading to a lot of over-similar books. (Perhaps in any case be argued that since books are chiefly used by mainstream, time-poor teachers, this is the area of greatest demand – adventurous teachers can and will create their own experimental materials.)

The end result

The result of all this is that negotiations for adoptions rapidly become focused on price or added value (additional give-away items, seminars, sometimes even downright bribery which is of course now very severely punished under new UK legislation). So although there are of course authors who have made a good living, there are no longer authors who have literally made a fortune.

The publisher will already know what the expected price will be and have made all calculations with the likely end revenue in mind. It’s likely that the print cost will be in the region of £1 – this varies according to the size of the book (format), number of pages (extent), the number printed (print run), number of colours, weight and type of paper, type of cover. The author royalty will be in the region of 10% of the final price the publisher receives. After that, the publisher needs to use the balance to cover all other costs – fixed pre-press investment, overhead and other costs, some of which I have mentioned above. So the picture of profitability (or loss) only really emerges over all the years the book is actively in the market.

Still think they're so greedy?

A 35-year veteran of ELT publishing, Sue sees this career as three distinct stages – then, in between, and now. ‘Then’ was when ELT course materials were special, valuable things, so there were fewer of them around and they were easy to sell (which suited the hedonistic lifestyle she enthusiastically pursued as a rep in Greece). ‘In between’ got going in the 90s, when the wide availability of computers removed barriers to entry to the publishing business. For a lengthy period Sue published materials for Latin America after a spell Asia, based in Hong Kong. ‘Now’ has seen periods as managing director of two different publishers in the US and UK, as publishers struggle to identify a way forward into the flexible, creative, digital world they’d like to be in, but which hasn’t really settled into identifiable business models with clear market segments.